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State Street Income Falls on Equity Valuations, Interest Rates

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Misses the estimates

State Street (STT) reported its 3Q15 earnings on October 23, 2015. The company missed Wall Street analysts’ operating EPS (earnings per share) estimates of $1.24, posting operating EPS of $1.16.

State Street reported net income of $543 million in 3Q15, up by 0.2% from $542 million in the prior year’s quarter and 38% from $393 million in the previous quarter. Reported revenues were $2.6 billion, up by 1.4% when compared with the prior year’s quarter.

However, the company’s total assets under management fell to $2.2 trillion from $2.4 trillion, mainly due to a fall in the S&P 500 (SPY) on the back of slowing growth, decline in emerging market equities, and lower interest rates.

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In a company press release on October 23, 2015, State Street chairman and CEO (chief executive officer) Joseph L. Hooley noted, “This quarter’s results reflect the decline in equity valuations globally, particularly in emerging economies and combined with the continued low-interest rates and the strength in the U.S. dollar, negatively impacted our revenue. Despite this market environment, we were able to advance our core business, growing operating basis fee revenue by 4% and 1% compared to the nine months and quarter ended September 30, 2014, respectively, and adding $141 billion of new servicing commitments during the third quarter. In addition, consistent with our previously stated objectives, we significantly reduced the level of deposits on our balance sheet during the third quarter.”

State Street overview

State Street provides financial services and products to institutional investors around the world. The company is managing $2.2 trillion in assets for governments, sovereign wealth funds, institutions, and retail clientele. The company’s two business lines include the following:

  • Investment Servicing – performs core custody and related value-added functions, such as providing institutional investors with clearing, payment, and settlement services
  • Investment Management – provides investment management, investment research, and investment advisory services through State Street Global Advisors (or SSGA)

Other asset managers

State Street posted revenues of $2.7 billion in the last fiscal year. Let’s compare this to the revenues of its peers:

  • JPMorgan Chase (JPM): $51 billion
  • Bank of New York Mellon (BK): $3.2 billion
  • BlackRock (BLK): $2.7 billion

Together, these companies form 1.7% of the SPDR S&P 500 ETF.

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